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Can You Pass Sales Comp 101?

Salesman, by Chris FithallWhen I was a new Compensation practitioner I used to think that, of all the schemes out there, the most detailed, the most carefully crafted, the most committed to memory were for the sales force.  Sales employees always seemed to know everything about their incentive plan; the exact figures for what they sold, where they stood year-to-date and exactly what their incentive payment check should show.

That may still be true in your organization, but my confidence regarding common practice has been shaken.  With increasing frequency I’ve found myself immersed in a client’s troubled sales compensation plan designs, struggling to salvage the motivational element of companies whose reward train had plunged off the track.

What happened?  Studies have shown that it is often not the design but the communication of the sales compensation design that is often to blame.  Even quality programs find it difficult to overcome the damage caused by errors in explanation.

Flubbed Message Sinks the Plan

Plan effectiveness is weakened right out of the gate when an organization fails to properly inform their sales force as to what is expected of them, and how they will be rewarded.

What follows is a list of critical elements that should be included in every sales plan document.

  • Show the money:  Highlight the target incentive figure and you’ll get their attention.  The more at risk the greater likelihood behavior will change in the right direction.
  • Objective clarity:  If you want to steer someone’s performance, give them a sense of direction.  The sooner the employee knows what you want them to do, the sooner they’ll start to focus.
  • Clarify thresholds and caps:  Two questions commonly asked are, is there a cap, and when do payments kick in?
  • Administrative rules:  Not exciting but necessary to help employees understand the plan and how it works.  Transparency dispels confusion.  Put it in writing.
  • Estimate earnings levels:  Specific examples drive the message that better performance delivers greater rewards.
  • Limit the key objectives:  Focus employee efforts to maximize performance.  Provide no more than four objectives – with none weighted less than 10%.  Below 10% no one pays attention.
  • Appeal process:  Spell out the method of handling payment calculation issues (i.e., what is recognized revenue?).  Questions/challenges are to be expected but don’t make employees search for remedies.  Be upfront about how to deal with problems.

Directing Traffic

Compensation literature describes sales plan initiatives as when you shout “go!” at the start of the year the sales force rushes out in a coordinated and well-orchestrated campaign of selling activities that achieve results.  What we often get instead is a mad dash of individual egos, each frantically pursuing the almighty dollar – with little consideration as to what impact their activities will have on colleagues, and on the business.

Left to their own devices some sales employees could drive the business right off the cliff and into deep financial problems – if the pay inducement was good for the wrong kind of selling activity.  Such a scenario can also pump up revenue without a corresponding increase in margin. Generating revenue without profit is just being busy, and that shouldn’t be anyone’s objective.

What do you face if you fail to provide clear and effective communications within your plan document?

  • Confusion:  “What exactly am I expected to do?”  “How am I to be rewarded?”  These are questions you don’t want your sales force to be asking.
  • Dissatisfaction:  An employee unhappy with their incentive plan, no matter the reason, will likely tamp down their degree of enthusiasm and engagement.
  • Unwanted activity:  Chasing sales that don’t maximize margins or that fail to push desirable new product/service lines.
  • Unrealized expectations:  “But I thought my check would be for X?”, or “I didn’t know you wanted me to focus on that.”
  • Missed opportunities:  If your marketing focus goes in one direction while your sales force heads in another, the achievement of critical results (i.e., revenue, new customers, market share, profits, etc.) may be left in limbo.
  • Reduced engagement: Ineffective communications will hinder (block, slow, complicate, etc.) the sales force effort, which in turn will weaken business results.  Which also reduces employee engagement – ultimately resulting in a higher level of separations.

If you know what is considered “success’ for the company (objectives attained), and you aim your rewards to complement the achievement of those objectives, then you can afford to provide healthy rewards to those who perform.  Because you’ve created a win-win scenario.

Just make sure you tell the right folks.

Compensation In The Real World

Cat-reading-glasses-with-paper, by Floho67I once supervised a Compensation Analyst who had spent much time attending professional seminars and workshops.  One result of that education was that when faced with a challenge at work she would repeat her class experience by saying, “the greatest minds in Compensation say that . . . “.  It took a lot of patience to educate this part-time practitioner/part-time student in the difference between the classroom/textbook answer and the reality of the workplace.

Recently I came across an HR blog in which the author was instructing readers in how to create a merit performance matrix.  Very good stuff, I thought, admiring the technical step-by-step instructions, except I knew from long experience that the described procedure was impractical and would never work in the real world.

Yes, it is very important to understand the technical foundations of Compensation methodology and practice.   But first and foremost you need to anchor yourself in the here and now, to know what will work and not work in your organization, what will be accepted and what will be rejected – no matter what the finest minds in Compensation think.

Why doesn’t Compensation theory match with workplace reality?

  • Business realities: Management will typically know more about a particular business situation than you do.  What you are able to provide to the decision-making process as a Compensation professional is limited to your particular subject area, while management usually has the bigger picture – the perspective of multiple viewpoints. Your compensation advice may not fit their business reality, no matter how logical an argument you make.
  • The bias of decision-makers: Decision-makers may feel that they intuitively know the right approach to take (they’ve done it before, if-it’s-not-broke-don’t-fix-it, a friend/relation/old college chum suggested an approach, etc.).  Perhaps they simply read an article and now insist you follow the advice of an author who doesn’t have a clue about this particular business.  Years ago I worked for a company whose CEO forced HR to implement a particular benefit plan because he had read a magazine article.
  • Problem avoidance: Short of killing the messenger, one solution for management is to do nothing about a problem (you’ve exaggerated it, the solution costs too much, there’s still time, etc.).  Senior managers can be like politicians in avoiding the big decision unless and until it bites them in the leg.  Have a care, as it can be dangerous to your career if you try to force a decision.
  • Business culture or model: Some initiatives just don’t “fit” into your organization. Managers with a laid-back organization style will not be interested in recommendations to document everything, standardize policies and procedures and have approved forms for every possible use.  Picture your head banging against the wall.

Sometimes those subject matter experts who instruct in Compensation techniques fail to ground their instructions with a caution to their students;  check this process out in the reality of your workplace before you take a classroom or textbook technique and wave it in the face of management.

An example:

Cost of living as a basis for pay increases:  I once watched over a fascinating exchange on a Compensation bulletin board, where a debate raged on for several days.  The dispute was over the appropriate formulae to use for calculating the cost of living vs. cost or labor as it affected average pay increases that management would approve.  Each side of the argument provided formulae, charts and graphs and quotes from notable experts to press home their opinion.

The underlying reality behind this exchange is that management does not use the cost of living as a prime determinant in their decision-making.  They are more likely to roll their eyes at the technical debate and focus on competitiveness and bottom line cost (affordability) – and why can’t we do the same as we did last year?  If their ultimate decision relates to the cost of living in some way, that’s only a nice coincidence that they can use in their employee communications.

A skill-set that separates the compensation technician from the compensation professional is the ability to deal with what I call the “softer” side of compensation.  Survey statistics, charts, and formulae are very good to a point, but management will want to know what it means and what to do about it.  So the answer isn’t simply reporting the data, but in taking that next step to help management understand and strategize their next move.

The contribution you can make to your organization is to blend your technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that is the key to success as a Compensation professional.

I Don’t Trust You

Angry Tiger, by Guyon MoreeAn often heard complaint about an organization’s performance appraisal program is that the employees don’t trust their manager to conduct a fair assessment of performance.  That view is also the common response when asked why a company doesn’t use a PA or even Pay-For-Performance (P4P) program to recognize and reward employees.

Isn’t that a sad state of affairs?  I don’t trust you.  I don’t trust the management of my company.  What does that attitude say about your performance culture, or the state of morale or employee engagement when the workforce has such negative feelings for their leadership?  How many successful organizations out there have an employee workforce that doesn’t trust them?

On the other hand, should you simply throw out the baby with the bathwater – stop conducting performance appraisals – and instead dole out general pay adjustments just for showing up for work?  Sort of like an attendance award.  Which essentially rejects the idea that individual employee performance levels do vary, and that variance is worth recognizing and rewarding.  Can you afford to treat “Super Joe” the same as “Joe Average?”

Or instead, if faced with this crisis of confidence, should you take the more difficult road and make a serious effort to fix the core problem?  Perhaps you should train your managers in how to properly assess employee performance.  Perhaps you should hold them accountable.

Lack of trust can be an avoidable problem if you’re paying attention.

Where Managers Fail

The list below highlights the common concerns that employees are complaining about; where some managers fail to be objective.  Where they can distort performance ratings, one way or another, by committing judgment errors that are based on bias, sloppiness or simply not caring enough about the process.

  • Halo Effect: Generalizing ratings based on one positive achievement or strength.
  • Horn Effect: Generalizing ratings based on one negative experience or weakness.
  • Recency Effect: Rater emphasis on a very recent event(s).
  • First Impressions Effect: Generalizing later ratings based on initial impression
  • Different Than Me: Giving lower ratings to those whose methods, interests, attitudes, etc. differ from yours.
  • Like Me: Giving higher ratings to those whose interests, attitudes, methods, etc. are similar to yours.
  • Central Tendency: Evaluating all ratees as average even when performance varies.
  • Carry-Over Effect: Rating during one rating period influenced by ratings from a different period.

Likely you’ve all seen or heard of these examples.  But when such abuses are left unchallenged by an organization’s leadership (all hail the status quo!) the natural result is that those on the receiving end grow to no longer trust the rater or the rating.  Or the process itself.

Did I say sloppiness?  When managers act as if they can’t be bothered by the performances appraisal process (too busy, better things to do, consider it a painful process, already know the answer, etc.), the resultant impact on your workforce will go beyond the ratings themselves.  How long before Joe Employee says, “They don’t care about me.  Why should I care about them?”

Is It Time To Kick Butt?

Small problems left unresolved will eventually morph into larger problems.  Ignoring a problem that is large enough that it can alienate your workforce, disrupt employee engagement, morale and ultimately productivity, turnover and your performance culture, that is a concern that you need to address – to root out at its core.  Or pay dearly for the consequences.

Managers who can not/will not conduct proper performance appraisal reviews are not doing their job.  It should be considered as simple as that.  And if they are not performing such a key managerial responsibility then they should be held accountable for that lapse.  Their own performance ratings and subsequent rewards should be negatively impacted.  Repeated offenses should put their jobs at risk.

These people are poisoning your workforce.  That should not be allowed to continue.  But how often do you see a manager penalized for not properly managing their staff?  It does seem sometimes that senior leadership isn’t interested, or certainly not focused on negative employee attitudes and perceptions as a cause of concern.

Employees who don’t trust their management to treat them fairly will never deliver the kind of performance, the kind of drive that will bring the organization success.

I have a prediction for you.  The clamor to throw out PA programs will continue to grow and fester as long as an organization doesn’t address the core problem of delivering objective performance ratings for its employees.  As long as leadership turns a blind eye to how managers assess and rate employee performance those affected employees will continue to resent what they consider a flawed and unfair system.  And how motivated is a resentful employee?

You have to deal with bad managers if wish to retain/regain the trust of your employees.  You leave these bad apples alone at your peril, and the cost can ruin your organization.

“I don’t trust you” is a warning sign that the Wraith of Business Failure is knocking at your door.

Who Are You Talking To?

Manager For A Day, by FTTUBI read a movie review the other day and noticed that in the first few paragraphs there were two words that I didn’t immediately understand.  The words “bifurcated” and “atavistic” were used, presumably to help readers better understand what the reviewer thought of the movie.

Well, those two words are not part of my everyday vocabulary, and upon reflection, I might be able to explain “bifurcated,” though aren’t sure what that has to do with the subject movie.  As to “atavistic,” I think that I’ve heard the word before, but really don’t know what it means.

Now I consider that my intelligence level may be considered a bit above average, so I have to wonder – who the heck was the reviewer talking to with their review?  I certainly didn’t “get it” as far as whatever points they were trying to make.  And NO, I didn’t drop everything to look up those two words.  What I did do was stop reading the review.

Who Are They Talking To?

This is especially important when considering your compensation communications.  If you want someone to hear what you have to say, to understand your message or point of view, to learn from reading your words, you have to talk to them at a level they are comfortable with.  Not you.  This is not about you.  Or at least it shouldn’t be.

There’s a lot of information out there, a problem for our times, some would say.  So if you want to get your message across, you need to be able to reach your target audience with as simple a message as you can.  So they all can understand, so they can repeat it to others, so that they’ll remember it tomorrow.

Is your text written at the New York Times 8th grade level?  If not, why not?  Don’t try to impress your audience.  It doesn’t work.

Losing Your Audience

A similar experience happens when listening to a speaker at a compensation conference, a webinar or even at your local professional association meeting.  The speaker uses a word or phrase that is foreign to you.  What did they say?”  Your mind stops listening as it struggles to identify the strange word and what it means – and then to put it in context.  Maybe you’ll figure it out.  Maybe you won’t.  Meanwhile, though, the speaker has kept on talking – but you haven’t been listening while your mind was paused.  Now you have a struggle to catch up.  Maybe you can.  Maybe you can’t.

Then it happens again.  Another mind pause while you mentally translate, “what was that again?”  And so it goes, and you never quite fully understand the speaker’s message.

That’s not communication.  That’s a speaker talking to a mirror.  You’re incidental.

The Writer’s Club

That’s what I call it, to describe the majority of contributors to professional journals.  For a number of years, I was on the article review committee for one of those magazines, and I often wondered who these authors were writing to.  If perchance they were trying to educate or explain practical tactics that would assist practitioners with their immediate problems, then I’m afraid that many an article wouldn’t pass muster.

That’s because many articles (check it out) are written by academics and consultants, not practitioners who have dirt under their fingernails from working in the trenches.  As a result, practical advice (what can I do now?) is usually in short supply.  What we all too often get instead is conceptual “stuff” from the view at 30,000 feet, broad inspirational white papers that you just know your senior leadership won’t even consider.

This isn’t always the case, of course, but how many of those articles are you able to wade through before your eyes glaze over?   Not just read the words, but learn from?  Heavy stuff.  Heavy lifting.

When someone is communicating, is actually reaching you with their message, you listen, you absorb, you learn.  It’s the same for me.

So talk to me, not to the mirror.

Why Reward Employees?

Boba Fett Reward, by pasukaru76Now you may be asking yourself, why is he talking about this?  Isn’t it rather obvious, like 2 + 2 certainly equals 4?  Doesn’t everyone reward employees for their personal efforts?

Sad to say though is that there really are organizations out there that don’t view the employer-employee relationship in quite the same way as the rest of us.  Their thinking is, “We pay them a salary for doing their job.  Why should we pay more?  Case closed.”

Okkkkk, but taking a page out of an old Compensation 101 textbook let me list the reasons that such a negative attitude about your workforce can become a problem, both short and long-term.

  • You need to pay competitive wages: While this point is seldom argued your comparative marketplace is a moving target.  What looks like competitive today soon won’t be, so unless you have a process for updating your competitiveness those pay rates will start to slip behind.  And that slippage will pick up speed over time.
  • Business costs rise over time; so do costs for your employees: The price of most items is higher today that it was a year ago.  If your employee costs (pay levels) are fixed/frozen your employees will have an increasingly difficult time making ends meet.
  • Behavior rewarded is repeated: It’s an old saying but is worth repeating until everyone “gets it.” If you reward desired behavior (good performance) you’ll likely get more of it.  Conversely, the lack of reward tends to encourage average behavior, or worse.
  • Do you want a high-performance culture?: If you fail to provide employees with equitable and competitive pay that’s linked to their job performance, what you’ll get instead is a lot of Joe Average performance.  Because an employee’s personal self-motivation (they’ll work hard anyway) is not sustainable.  That personal battery of enthusiasm will drain down and shut off.
  • Employee expectations: Yes, they expect to be paid a reasonable base salary for their work, but they also expect to be both acknowledged and rewarded (pay increases) for making a continuous effort on the company’s behalf. No one will work well for very long with their pay frozen or the likelihood of more money being a “maybe” or a “we’ll see.”
  • An elemental cost of doing business: This may be hard for some to understand, but if you’re going to operate a business there are certain costs that need to be incurred. Otherwise, don’t bother.  And one of those costs is to properly pay the people who are working for you.  They keep the business going, and you should never forget that.
  • Honoring your commitment: Do you proudly tell everyone who will listen that you’re a “pay-for-performance” company?  Do you believe that employees drive business success?  Well then, you had better walk the talk.  Because employee trust is at stake, and failure to hold up your promises will ensure business mediocrity, if not a slow descent into failure.
  • You should fear the alternative: If you decide to march to the beat of a different drummer, to say “nahhh” to the above, then consider what your future likely holds in store for you. Because when employees start to say, “why bother?” you’re in trouble.
  • Dissatisfaction with management: This is both negative and infectious. Disgruntled people are not quiet people.
  • Reduced morale: Sad faces and blank looks are not signs of an engaged workforce.  Talk around the break room will lean toward other “opportunities.”
  • Reduced productivity: Employees take their foot off the gas pedal.  What you get from them starts to drop off from a desired 110% effort to somewhere south of 100%.
  • A higher degree of disengagement: When your employees start to mutter, “I don’t care” – that attitude will spread, either slow or fast.  What it builds is a low performing culture.  Think of your business as a car driving around town with the brakes on.
  • Increased turnover (leavers) – of the wrong sort: better performers, who always have an option in the marketplace. Someone else will tell them, “We love you.  We’ll take care of you.  Come work for us.”

If you believe that employees are important to the success of your organization, then not having a proper pay-for-performance program in place to recognize and reward job performance on a regular basis is a mistake of the highest caliber.

Then again, perhaps some believe that employees are an easily replaceable commodity, that their pay is a cost worth trying to reduce, rather than an investment.  Employees are not people, but simply cells within a spreadsheet, or blocks on an organization chart.

Just remember that what you sow is what you’ll reap.

Compensation Managers Need To Manage

Manager For A Day, by FTTUBHaving technical smarts isn’t enough to manage either the staff or the function.

I once supervised a strong performing technical analyst who was eager to work his way into compensation management.  This fellow was a whiz at spreadsheets, data analysis, and survey modeling.  When you needed a number you knew who to ask.

However, he was not good at explaining compensation and experienced difficulty with personal interactions when dealing with contentious issues involving either individual employees or internal clients (management).  Relying primarily on his technical background he was all black-and-white numbers with those he dealt with, even when the landscape turned grey and the client needed new thinking.

The career challenge he faced was being able to morph from an objective in-the-trenches technical analyst into a broader, more visionary role (subjective) that required comfortably dealing with the “big picture.”

Job Growth

A long time ago, when I was a Compensation Analyst, I worked on a lot of spreadsheets and job evaluations.  Then, when I became a Compensation Manager I handled fewer spreadsheets and fewer job evaluations.  Someone else helped.  When I became a Director of Compensation one of my subordinates was assigned to the spreadsheets and job evaluations.  I remained accountable but was able to assign the responsibility elsewhere.

Thus the higher I rose the broader my vision of compensation needed to become, moving from looking straight down my nose at the desk in front of me to over the employee’s heads and onto the horizon and beyond.  Which meant that, as I dealt less with compensation details on a day-to-day basis, the required tools and competencies of my role changed.  I became part of management.

Managing Compensation usually consists of two levels, first one and then the other:

  • Manage the staff: You have subordinate employees whom you are responsible to lead.  This means hiring, firing, assessing performance, making staff pay decisions, assigning work, training and developing and in general making sure that your employees get their work done in a proper fashion (done right and on time).  Your manager should be measuring you at least as much as a manager of employees as for the individual contributor you used to be.
  • Manage the function: In addition to the above, here your responsibility is to lead the compensation function; to take control of the company’s reward programs and either administrate them or convert them to better support business objectives.  Here lies the responsibility for vision, persuasiveness and higher-level personal interface.

If your role is administrative in nature, simply to keep the ship afloat, you can manage the staff without having to manage the function.  On the other hand, I’ve seen bad managers who were good at the vision part, but hopeless when it came to people skills (their staff).

The harder task is to lead, to have the vision and the confidence to drive the function forward.  It means taking reasonable risks, being able to defend and justify your recommendations and being able to influence senior leadership to move in the general direction you espouse.

And by the way, having great technical skills in no way guarantees that you’ll have similar success with management skills.  Workplaces are littered with the false dreams of those unable to adapt to a new set of necessary competencies.

I, Manager

The point is, that whichever role you find yourself in, being an effective manager requires that you focus on the people side – your employees and your clients.  It means that, to a large extent, you need to separate yourself from those technical tasks that you personally performed earlier in your career.  You should delegate detail work to subordinates while you deal with the broader issues and more direct interfaces with clients and management.

It will entail you learning a whole new set of skills – management skills.

But some folks don’t like to leave their spreadsheets and survey analyses behind.  These are those who fail to fully embrace their management responsibilities, but continue to play an individual contributor role – as if their title remained an Analyst, not a Manager or even a Director.

The Bits would ruefully shake their heads; poor form, poor form.

I Don’t Remember That

This is a wallpaper of a sleeping cat

This is a wallpaper of a sleeping cat

Have you ever found yourself in a situation where someone (usually your boss or a higher-up) makes an announcement or a decision using draft or preliminary figures that you had given them some time ago?  Only today the correct figures are different from what you presented as a draft.  Then when you ask why the “old” numbers were used, the finger points back at you.

Awkward, isn’t it?

Suddenly you’re on the defensive and your credibility challenged because of an earlier estimate or cautionary advice that perhaps you didn’t want to give out in the first place.

You want to scream at the offending party, “don’t you remember that I told you that the figures weren’t final?”  That your analysis was incomplete at the time, that further checking was required, or that you gave your best estimate based only on preliminary data?

But you are the author of those figures, no matter how wrong they are today.  So why are they still in play?

Selective Memory

It often turns out that all that was remembered by the fellow with the frown on his face was that particular damning figure, and all the buzzing in their ears about qualifier terms and conditions that preceded and followed it has been forgotten.  To your chagrin you may now be viewed as someone who either; 1) gave incorrect information, or 2) subsequently changed your mind without telling anyone.

Unfortunately, you can’t say what you’re thinking.  That wouldn’t be a good career move.  The only card you have to play reads “damage control.”  Roll out those qualifiers again.

Earlier in my career, when I was responsible for job evaluation, I would steadfastly refuse to offer a preliminary evaluation, having been burnt by the same scenario as above.  I found that, if the managers liked what they heard, that’s all that they would hear.  Because if, lord forbid the final analysis differed from the preliminary estimate you’d be hauled up before the Inquisition to explain why you changed your mind.

“I already told the employee,” is a phrase I’ve heard more than once – before I learned to keep my mouth shut.

So be careful when you give a number to management before you’re confident enough to defend it.  For their own purposes they’ll grab what you give and lock it down with their fixated, but flawed memory, while at the same time forgetting any qualifier terms or cautions you might have provided.

It’s human nature to remember what you want to hear, or what you can accept.  So that preliminary figure you surrounded with qualifiers?  Chances are management was OK with the number, or at least could deal with it, and so off they ran to integrate your analysis into their plans.

“I Don’t Remember You Saying That”

In their forgetfulness, they might even grow irritated with you, for all the plans they made with “draft” or “preliminary” data (shame on them).  These folks suddenly act like you changed your mind, or gave them wrong information.  All your previous explanations and qualifier comments are lost.

Management memories can be quite selective, and they would be very reluctant to admit an error on their part, never mind deal with the consequences that their actions created.  But as they are higher up than you on the food chain, discretion in verbal and written thought still remains your best response.

What Can You Do?

This is a situation where your options are limited, because; a) you’re likely dealing with your boss or higher, and any critique of their behavior needs be carried out very carefully, and b) when you’re asked for a number you generally have to give one.  Begging off is usually not an option.

So remember a tactic once described to me by a Training colleague:  you have to tell them, then tell them again, then remind them of what you told them.  So if caught up in a “give me a number” quandary, you need to emphasize whatever qualifiers might later modify the figure(s) being discussed.  Then you have to repeat your concerns again before closing.

Finally, put the worrisome figures in writing, nicely wrapped together with whatever concerns you have about its validity.  Cover yourself.

Will it work?  Will it save you from another awkward moment?   Perhaps.

Life isn’t fair, is it?  So no, even this strategy will fail from time to time.  But at least you’ll have positioned yourself to present an effective response.

Just remember to be polite about it.

Dotting The “I” And Crossing The “T”

Employee, per Southern Methodist U.In order to manage reward programs effectively, compensation practitioners and senior management need to understand how externally competitive those programs are.  In making that determination, though, just how precise does the analysis have to be?  To what lengths should one go to increase the level of exactitude in the analysis, and is that effort worthwhile?  Does the effort to squeeze out greater precision bring meaningful results?

In other words, what’s the additional value of dotting the “I’s” and crossing the “T’s”?

As compensation professionals will tell you, the competitive “marketplace” for reward program surveys is an imprecise animal, subject to numerous variations and interpretations.

  • One survey doesn’t use the same companies as the next survey.
  • The ability to match job descriptions varies from precise to broadly similar roles
  • Surveys provide different mixes of industries, geographies, and revenue
  • The use of weighted average/Average/ Median/ 50th percentile formats isn’t standardized
  • International surveys often fail to provide enough information

In addition, the market is a moving target as population changes, organizations shift and employee pay fluctuates.  This means that you’ll need to be careful of “aging” factors, such as adjusting data from date of collection to the current or some future date.   My practice is to “round” to the nearest 100 units of annual currency.  Is that distorting data?

Pick A Figure?

Do you think that a market rate of $47,570 for a particular job is an accurate reflection of current trends, or simply an arithmetic average of data that looks precise?  Would you fall on your sword over that figure?

Using three different surveys would likely provide three separate figures.  Let’s say your sources report $45,723, $47,612 and $49,375.  If cost, time and effort are not factors to consider, then you could keep going, searching for that common denominator.  Purchase another survey source.  Double and triple check your job matches.  But do you think that the extra source, the extra time/effort will substantially change your initial analysis, or are you simply looking to protect yourself?   Repetition is sometimes just that, more of the same with little-increased value.

Are you playing a defensive game to divert potential criticism?

For most of us, a quick and straightforward analysis suggests that approximately $47,500 is good enough.

And what degree of precision are you being asked to provide?  Are your instructions to feel the pulse of the marketplace,  to get a sense of what is being paid out there?  Or do you need a more precise result?  Is your audience demanding more?

Is The Market A Number?

What is that market?  Anything within +5% to -5% of a “market rate” figure is close enough for me.  Others believe that variable should be 10%, but in my view that leaves too wide a range that could distort your intent to provide the so-called “going rate” trend.

Caution:  You can find any number of analysis paralysis jockeys out there who advocate increasingly precise techniques to zero in on what they call your true market rate.  Just remember that many vendors have built a business around encouraging organizations to slice and dice whatever information is available, trying to define and refine exactly what a “market” is paying, what jobs are exact matches and after a fashion what numbers you can rely on.

Part of their marketing strategy is to use custom designed evaluation techniques and proprietary job matching systems.  Such a strategy effectively marries the organization to the vendor, as one often can’t use proprietary language and techniques (the system) with other survey providers – without the risk of apples vs. oranges.

The Leadership Perspective

From a senior leadership perspective, do you need that depth of precision to make a business decision?

I think you don’t.

There’s a place for precision, and a place for trends – for a “feel of the pulse.”  Usually, senior management wants to gauge the big picture – the overall strategy and its implementation status – letting professional specialists deal with the tactical details.

Have a care in your efforts to be precise, because when you give senior management too many details they tend to dive in almost as a defense mechanism as if they are expected to ask questions. Where they might otherwise have nodded their heads at key points in your presentation, you can instead find yourself immersed in detailed analytics that can bog down the decision-making process.

Management wants your professional judgment.  They don’t want you to defer opinions to what a survey says.  Use survey data as a backup.  Don’t feel you always need to lead with it.

Standing back and pointing at figures is like leading with your chin in a fight.

You won’t like the results.

The Few And The Brave

Different Is Beautiful, by epicnomWhen it comes to the design of performance management programs most companies play it safe.  Right smack in the middle of their assessment scale is the word “average”; or perhaps they use “meets expectations,” or “satisfactory” or the like.  Each term signals the same assessment, though – middle of the road.  And isn’t that where managers expect most employee to fall?  After all, the height of a distribution curve peaks at “average.”

Surveys show that over 80% of organizations using a rating scale to assess employee performance have chosen either a three, five (most popular) or seven scale system.  The common denominator of each is a middle rating category, the average.

But what if you chose not to have a middle rating in your performance review process?  What if you told managers that they couldn’t call anyone “average;” that employees would have to be designated as either better or less than that?

No Can Do

Which is exactly what you’ll hear.  Many managers will balk at having to choose between rating someone as either what they consider an under or over performer.  That’s the way they’ll see the decision-making process – as forcing them to select what is for them an incorrect rating.  Because they think the majority of employee performance falls between those ratings.  Because they think most folks are average, doing the job that they were hired to perform.  And “average” is a safe word.

Other organizations have decided that they want their performance review process to couple development dialogue into the conversation and encourage employees going forward.  These feel that in order to achieve that goal they need to better describe how their employees have been performing.  Which means that they take away the middle ground.

Perhaps there’s a different way to look at the rating process, a less “easy button” approach that doesn’t provide a default selection for the manager.  Perhaps there’s a tactic that might help drive employee performance – instead of simply reacting to it.

What if the performance review process asked a different question?  Instead of assessing how an employee’s performance compared to a common-man average, what if the question became whether the employee was “successful” in their job?


Here’s a word that implies achievement, the gaining of favorable results.  Compare that against what the dictionary would describe as common, ordinary, typical – the average.  An argument can be made that an “average” employee is not necessarily a successful one and that a successful employee is a better performer than an average one.  For the good of your business, I’d suggest that you’d want to encourage more successful employees than average ones.

A common management view of “average” employees is that “we’re not going to get where we want to go with this group.”  The desired goal of a high performing organization will not be achieved on a foundation of common, ordinary and typical employees.

Needs Improvement

What if, instead of saying an employee’s performance was below average (usually seen as just below the middle ground) you viewed effort more positive, saying that the employee was “on track” though not quite yet successful?  This can be a different, less negative perspective.  If you want your performance review process to help drive performance, then encouraging employees (“you’re almost there, keep it up”) is a better strategy than negativism.  And if you believe that performance recognized is performance repeated, then you want to make sure you focus on a glass that’s half-full, not half-empty.

Taking A Risk

Designing a performance review process without a middle rating for your performance scale is taking a risk, which is no doubt why most companies steer clear.

  • Too many employees could be ranked “successful,” merely to avoid the negative connotation of “needs improvement.”
  • Over-rated employees might be given the wrong message, inflating their perception of a performance that doesn’t deliver the same effort to the organization.
  • The bottom two (of four) rating categories would see little use as “Needs Improvement” retains its strong negative connotation.
  • The organization wouldn’t have sufficient merit increase monies to reward the great majority of employees rated “successful”  – thus leaving little room (or motivation) for lower ratings.

Such an environment could weaken your performance review process to the point of being ineffective – almost pointless.  Those rated less than “successful” would likely fall below 10% – 20% of your workforce – which for most organizations is not a true reflection of performance.

Many of the ratings might even become reluctant manager “gifts” meant not so much to recognize performance but rather to avoid facing uncomfortable conversations with disappointed employees.

This is where management training, coupled with a careful and continuous monitoring of the performance review process, would be key to success.  When you don’t provide a default “easy button” you need to make sure that the decision-makers not only understand the rationale of the four-scale rating system but follow it.

So kudos to those with a four scale performance rating system.  They’re trying to walk the talk of performance management and pay-for-performance.  I wish them luck.

Do We Need A Pay Structure?

6273248505_43d0b56424_oOnce an organization reaches a certain employee population it’s been typical practice for the Human Resources department to replace their ad hoc compensation/reward processes with a more structured program.  A key element of that program development is the establishment of a base salary (pay) structure.  Here you will have an ascending hierarchy of grade level designations (your position is a grade “x,” mine is a grade “y”, etc), coupled with ranges that indicate a minimum-to-maximum value (pay) for each grade.

While distinctions in design can vary amongst organizations the central point of having a uniform structure is very much commonplace in both for-profit and non-profit organizations.

You probably see the “but” coming, don’t you?

Startups And Small Businesses

Just the other day one of my clients, a young and fast-growing high-tech company, explained to me that they didn’t use grades or salary ranges.  They didn’t have a pay structure.  They felt that they didn’t have the time to develop a standardized reward program. “We’re moving too fast,” the CHRO told me, and “We don’t have the time, people or money to focus on an HR project.”

That’s a common response for start-ups and small businesses.  The feeling is that there aren’t yet enough employees to start building an HR infrastructure.  Everyone knows everyone else’s first name and the company Christmas Party could be held at a restaurant.  Also, business leaders are too engaged in more important endeavors: getting the business off the ground, developing products and services and setting up mechanisms to sell their offerings.

Therefore these first generation employees are usually paid on the basis of:

  • Whatever the individual employee could negotiate
  • Whatever the company felt it would take to get chosen candidates to join, or
  • Setting of fixed rates for everyone in a particular job

Little thought is given to pay relationships (equity) or even the short-term impact on payroll expense.  The focus is lock set on creating a business, of getting the ball rolling.  Even job titles become an afterthought, with resultant title inflation slowly infecting the organization, and almost no one has a job description.

I get that.  That’s the reality of getting a business off the ground.  HR takes a back seat.

But it can’t last.

Paying The Piper

Eventually, these poor compensation practices will start to cause real pain within the organization, similar to how too much sugar inevitably causes tooth cavities in children.  Payroll gets out of hand (too high), inequity amidst the staff starts to cause employee relations issues and managers begin to see valued employees becoming disgruntled and heading for the exit.

By the time management starts to realize they have a problem, not only have the problems grown serious and disruptive, but those pay practices that no one cared about earlier have now become ingrained in the small company’s culture. Now it’s not going to be so easy to change course.  Now management risks angering some employees even as they try to steer the ship away from the reefs.  Some of those employees could be valued contributors.

For example:

  • Disconnecting inappropriate job titles is sometimes easier said than done.  Employee egos and self-identification have been blown out of proportion, but to make someone take a step back is difficult.
  • Dealing with outliers who either pop out the top of a salary range or fail to meet the minimum level.  When faced with a competitive pay structure to replace the ad hoc and laissez faire suddenly some employees are found to be overpaid, while others are underpaid.
  • Facing the cost implications of the above.  Raising someone to the minimum value of a pay range is an easy decision, but what if many employees are affected?  And if an employee has been with you for awhile, raising them to the minimum can still be perceived as a slap in the face.
  • Setting grade assignments that reconcile a job evaluation system, competitive market pricing results, and internal equity.  Think of a juggling act where everyone is a potential critic.

So do yourself a favor.  Pay attention to germinating pay issues even as the business passes through its stage 1 and stage 2 development.  Then, when it’s time to standardize and structure your reward programs you will find the road ahead all the smoother for your efforts.